First of all, we should introduce several basic concepts: winning rate, profit-loss ratio and Kelly formula.
Winning rate: all profit times/total transaction times x100% = a (1>; = a & gt=0)
This concept is easy to understand, that is, the number of victories, that is, the ratio of the number of profits to the total number of transactions. For example, if you make 100 transactions and make profits 55 times, then the winning rate is 55%.
Profit-loss ratio: average profit/average loss =b(b is a constant greater than 0).
Profit-loss ratio refers to the ratio of profit and loss of a transaction, which directly affects the change of the net value of the trading account.
It is worth noting that a high winning rate is not necessarily equal to profit. If you gain 9 times and lose 1 time, the total profit amount is 10 and the loss amount reaches 20 dollars, you will still lose 10 dollars.
In other words, even if the winning rate is high, a single huge loss is enough to "waste" all the hard-earned profits.
Perry Kaufman, an American trading system expert, has done relevant research on these combinations. After studying foreign exchange, gold futures and options traders, he found that:
Traders who pursue a high winning rate (for example, the expected winning rate is in the range of 0.5- 1) will mostly fail; Successful traders will pay attention to winning percentage, but will not stick to high winning percentage. The winning rate of their trading system is generally below 50%, mostly between 30-50%.